Mark Carney attended part of a three-and-a-half-hour special cabinet meeting on Thursday.
Photograph: Daniel Leal-Olivas/AFP/Getty Images

Mark Carney has said the Bank of England is not predicting a property market crash in the wake of a no-deal Brexit, as he sought to clarify a doom-laden briefing given to the cabinet on Thursday.

The Bank governor said a housing slump and other outcomes including a double-digit unemployment rate were worst-case scenarios used in stress tests for British banks, designed to ensure there is no repeat of the 2008 financial crisis.

“That’s not a prediction of what is going to happen,” Carney told an event in Dublin a day after it emerged he had told a special meeting of the cabinet that house prices could fall by 35% after a no-deal Brexit.

It is understood that was the worst of three no-deal scenarios presented to ministers and is in line with the Bank’s 2017 stress-test scenario that also envisaged unemployment rising to 9.5%, from the current level of 4%, and interest rates jumping to 4%, from 0.75% today.

The governor had been invited by Theresa May to update ministers on the Bank’s preparations for no deal. He attended part of the three-and-a-half-hour cabinet meeting before departing.

The Bank’s no-deal economic forecasts were to have been made public in around November, to inform MPs who will have to vote on whether to approve whatever Brexit deal May negotiates with Brussels.

But to No 10’s frustration they leaked from the meeting, where Carney’s gloomy forecasts were endorsed by the chancellor, Phillip Hammond.

“We have been working on making sure that those institutions that we continue to supervise [the banks], they’re prepared for all potential contingencies. Central to that has been stress-testing those institutions to severe outcomes,” he said.

“That is what you need to do in order to make sure that in the better states of the world that the [banking] system is very clearly and transparently ready for [a harsh scenario] and able to continue to lend.”

The governor used his speech in Dublin to warn that the Bank needed to “hope for the best but to plan for the worst”, amid mounting concerns over a no-deal Brexit with less than 200 days until Britain is due to leave the EU on 29 March. Interest rates may need to change in response, he said.

Despite sounding the alarm over the threat to the economy, he said the response to a no-deal Brexit would not be automatic and would depend on the balance of demand and supply in the economy, as well as the level of sterling on foreign exchanges.

Carney told MPs last week that a no-deal scenario could trigger a renewed drop in the value of the pound, leading to higher levels of inflation and squeezing the wages of British workers. “It is likely the real income squeeze will return for households across the country,” he told the Commons Treasury committee.

The governor agreed last week to continue in his post until the end of January 2020, angering leading Brexiters who have repeatedly criticised his warnings over the potential impact of Brexit on economic growth and living standards.

Chuka Umunna, a remain-supporting Labour backbencher, said: “Mark Carney has issued a grave warning to government that a no-deeal Brexit would likely mean a huge disruption in trade, significant contraction in the economy comparable to 2008, higher unemployment and rising inflation.”